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Toast the New Year With These 'Boozy' Funds

Investment-wise, 2007 will be remembered as a year when fashions changed faster than at a Paris Hilton soiree.

Large-cap value, utilities, REITs, precious metals, China and large-cap growth came into and out of vogue with numbing regularity.

So to appropriately cap off 2007, we have a list of funds likely to gain and then lose popularity in just a matter of hours.

Assuming you bid adieu to 2007 at a New Year's Eve party, the mutual funds on the accompanying list might appear enticing at around 11:59 p.m. But six or seven hours later, the thought of them is likely to make you roll over in bed and beg for an aspirin.

Each of the funds in the adjoining table has more then 6% of its net assets invested in a group of alcoholic beverage stocks. The 24 selected stocks are from the Dow Jones beverage brewers index and that organization's distillers and vintners gauge, as well as other large domestic and international firms in the alcoholic beverages business.

In all, 1,386 open-end mutual funds have positions totaling $39 billion in the selected alcoholic beverage stocks. In addition, 139 exchange-traded funds hold positions with a combined value of $4 billion in the group while 41 closed-end funds hold an aggregate value of $492.6 million in the purveyors of intoxicants.

Even though Fortune Brands (FO) -- distributor of Calvert alcoholic beverages -- is among the stocks on the adjoining list, you will not find any socially responsible Calvert Group of mutual funds anywhere near the roster of funds holdings those stocks.

In fact, what might be accurately described as the antithesis of Calvert offerings and other socially responsible funds, the (VICEX) (VICEX) sits comfortably atop the open-end mutual fund section of the list with 23.77% of its portfolio devoted to the selected alcoholic beverage stocks. In addition to booze, the VICEX portfolio focuses on tobacco, gambling and the defense industry.

(The Vice Fund's manager, Charles L. Norton, is a contributor to RealMoney.)

Its largest portfolio holdings are Altria Group (MO - Get Report) and Carolina Group (CG - Get Report), with beverage giant Diageo (DEO) not far behind.

Another concentrated play on the alcoholic beverage industry is the newly debuted (Nov. 30, 2007) FocusShares ISE SINdex Fund (PUF). Besides the alcohol industry, this ETF concentrates its investments on gambling and tobacco. Its largest portfolio holdings are Bally Technologies (BYT) and UST (UST).

Ever wondered whether alcoholic beverage stocks are consumer discretionary or consumer staple investments? The definitive answer comes from no less an authority than mutual-fund giant Fidelity; as you can see in the adjoining table, the (FDAX) (FDFAX) -- note the word "staples," meaning nondiscretionary, in its name -- holds 10 of the hangover stocks, making up 7.72% of its assets.

Its largest holdings are Procter & Gamble (PG - Get Report) and Coca-Cola (KO - Get Report).

Fidelity isn't alone in its view. Four other funds in the table confirm that the bottle of Jack Daniels belongs on the shelf next to the extra virgin olive oil as a component of your inventory of consumer "staples" (but out of the reach of the kids, of course). With phrases like "consumer staples" or "consumer non-cyclical" embedded in their names, they leave no doubt.

OPEN-END MUTUAL FUNDS Vice Fund (VICEX) A+ 8 23.77 36.1 23.17 18.24
ING Van Kampen Glb Franch A (N/A) U 4 11.25 48.9 N/A N/A
Van Kampen Global Franchise A (VGFAX) B+ 4 11.24 273.5 11.84 15.68
Universal Inst Global Fra II (UGIIX) C+ 4 11.15 20.5 2.6 12.32
MSIF Inc. Global Franchise A (MSFAX) A+ 4 11.14 16.0 11.98 15.74
ICON Leisure & Consumer Staple (ICLEX) E 3 10.64 3.4 10.37 3.99
Rydex Series-Consumer Products A (RYPDX) B+ 5 10.63 2.7 15.11 11.02
Oakmark Fund (The) II (OARMX) D- 4 8.43 481.8 1.56 5.96
First Inv International A (FIINX) U 3 8.31 6.5 19.17 N/A
TA IDEX MFS International Equity A (ICIAX) D- 3 7.89 2.3 14.04 16.41
AIM Leisure Fund A (ILSAX) D 6 7.88 75.2 6.81 9.96
Van Kampen American Franchise A (VAFAX) U 2 7.75 36.7 2.03 N/A
Fidelity Select Consu Staples Port (FDFAX) A+ 10 7.72 37.7 25.76 17.61
MFS Inst Intl Equity Fund (MIEIX) A 3 7.61 227.6 14.59 18.79
PL Intl Large Cap Fund A (PAGGX) B+ 3 7.57 7.1 13.07 17.16
USAA International Fund (USIFX) A- 3 7.44 118.9 14.12 18.43
Lazard Intl Equity Select Open (LZESX) A+ 3 7.08 2.3 13.96 15.43
Symons Alpha Growth Inst (SAGIX) U 2 6.79 1.2 N/A N/A
Phoenix Foreign Opportunities A (JVIAX) A+ 3 6.13 79.9 20.51 23.97
Artisan International Value Inv (ARTKX) B+ 1 6.02 102.5 4.35 16.34
FocusShares ISE SINdex Fund (PUF) U 6 21.40 1.0 N/A N/A
Rydex S&P Equal Weight Consumer Staples ETF (RHS) A 4 11.48 0.9 12.22 N/A
iShares S&P Global Consumer Staples Index Fund (KXI) A+ 11 9.56 6.6 23.41 N/A
WisdomTree Int'l Consumer Non-Cyclical Sector (DPN) A+ 8 7.99 1.9 19.62 N/A
Boulder Total Return Fund, Inc. (BTF) B 3 6.75 24.8 10.0 12.4
Lazard Global Total Return & Income Fund (LGI) A 2 6.48 17.2 8.5 12.9
S&P 500 Composite Total Return 5 0.52 N/A 7.72 10.09
* Of 24 selected alcoholic beverage companies.
** "U" is unrated.
Source: Ratings - Data as of 11/30/2007.

If the likes of Fidelity, ICON Funds, Rydex Investments, Barclays/iShares and Wisdom Tree imply that alcohol is a "staple" for consumers, who is to say otherwise?

In general, the funds on this list have given investors no cause to place ice packs to their heads. Of 23 members of the group for which 12-month performances are available, 18 have outperformed the S&P 500 total return index over the dozen months ended Nov. 30.

For the past three years, 15 of the 18 funds for which sufficient history is available have outpaced the S&P.

Of 21 funds in the group with sufficient track records (three years) to be rated, fully 11 have achieved grades from Ratings in the "A" range. They are kept company by five more that earned marks in the "B" range to qualify for "buy" recommendations. One of the funds rated a "C+" for a status of "hold" while four were in the "D" and "E" ranges, which equate with "sell" recommendations.

(If you're interested in investing directly in alcoholic beverages, click here to read why champagne is getting better and here for a list of bubbly that won't leave your wallet flat.)

Before anyone becomes intoxicated by any of the funds on the list, a crucial factor that investing and imbibing in alcohol have in common should be kept in mind: caution and moderation above all.

Have a happy and very prosperous New Year!

Anheuser Busch Cos Inc BUD 457 53 18 6,294.0
Boston Beer Incorporated SAM 80 22 1 100.0
Brown Forman Corporation BFB 191 50 7 1,316.8
Castle Brands Incorporated ROX 9 0 0 1.2
Central Euro Distribution Corp CEDC 112 19 2 557.1
Companhia De Bebidas Das Ameri ABV 65 8 0 1,541.7
Compania Cervecerias Unidas SA CU 29 1 0 28.6
Constellation Brands Inc STZ 209 39 4 1,813.7
Diageo PLC DEO 382 33 14 11,490.4
Fomento Economico Mexicano Sab FMX 130 0 2 1,563.9
Fortune Brands Inc FO 319 48 14 3,120.5
Fosters Group Limited FBRWY 18 1 1 405.4
Heineken NV HINKY 15 20 8 451.5
InBev N/A 143 12 4 2,575.3
Kirin Holdings Company Limited KNBWY 75 11 1 549.3
Lvmh Moet-Hennessy Louis Vuitt LVMUY 152 14 4 3,046.4
Molson Coors Brewing Company TAP 328 41 8 2,290.7
Pernod Ricard SA N/A 111 11 3 2,824.2
Pyramid Breweries Incorporated PMID 12 0 0 1.4
Redhook Ale Brewery HOOK 12 0 0 3.7
Remy Cointreau SA N/A 39 1 2 532.6
Sabmiller PLC SBMRY 114 12 0 2,954.5
Vina Concha y Toro SA VCO 3 2 0 12.0
Willamette Valley Vineyard Inc WVVI 6 0 0 0.4
Totals * 1,384 139 41 43,475.2
* Number of funds holding any of the stocks (redundancies eliminated).
Source: Ratings.
Richard Widows is a financial analyst for Ratings. Prior to joining, Widows was senior product manager for quantitative analytics at Thomson Financial. After receiving an M.B.A. from Santa Clara University in California, his career included development of investment information systems at data firms, including the Lipper division of Reuters. His international experience includes assignments in the U.K. and East Asia.

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